Alpha Architect Research Blog

The Newest Alpha Architect Research and Insights


Surprise! The Size, Value, and Momentum Anomalies Survive After Trading Costs

transaction costs and anomalies
Anyone who has spent time reading this blog has become familiar with research involving asset pricing anomalies that generate excess returns. In particular, the academic literature has addressed the following: "size," or a portfolio of small minus big stocks (SMB) ...

Asset Pricing with–and without–garbage.

garbage
If you are into consumption-based asset pricing theory and the associated empirical attempts to reconcile the theory with the data from the realized equity premium, garbage is a fascinating subject. So let's talk about asset pricing both with--and without--garbage. First ...

Taming the Momentum Investing Roller Coaster: Fact or Fiction?

Intermediate-Term Price momentum, originally researched by Jegadeesh and Titman in 1993, documented a how recent stock returns tended to continue in the future. Stocks that were past winners (on average) continue to do well, while stocks that were past losers ...

Alpha Architect 2 for 1 book deal — cheap summer reading!

Yang Xu on Vacation. Enjoying his copy of Quantitative Value and DIY Financial Advisor
Readers: We know a lot of you are out on vacation in August and probably having the time of your life (eg., see below). But just because you are on vacation, doesn't mean you should stop learning! So ask yourself ...

Can Investors Replicate the Dorsey Wright Focus 5 ETF Strategy?

fv growth
A long-time reader asked that we examine the performance and process associated with the Dorsey Wright Focus Five ETF (ticker: FV). For those who are unfamiliar with the product, FV is a $3B+ sector rotation fund. The fund is designed ...

DIY Asset Allocation Weights: August 2016

diy august
Do-It-Yourself tactical asset allocation weights are posted. Create a free account here if you want to access the site directly. Sign in here if you already have a free account. Exposure Highlights: Full exposure to domestic equities. Full exposure to ...

Risk Tolerance Assessment for Investment Success

risk
My Introduction to Decision-Making...40 years ago When I attended the Harvard Business School my favorite class was Managerial Economics. It focused on decision making under uncertainty [1]. The first thing to understand is the concept of expected value. You determine ...

Fine Wine is a Fine Addition to Your Investment Portfolio

Wine versus other assets_1900-2012
Here we are in August, a great time to drink--and think--about wine. Of course, as a research-focused finance blog, our angle on wine is a bit different than that of Dr. Vino. A summary of the discussion: ...we estimate a ...

Evidence-Based Investing Requires Less Religion and More Reason

finance science
Technical Analysis: The Market’s Oldest Religion During the 1600s, the Dutch had a large merchant fleet and the port city of Amsterdam was a dominant commercial hub for trade from around the world. Based on the growing influence of the ...

Farewell to our Beloved Teammate, Tian Yao

image (1)
Friends/Readers, Tian Yao, a former student of mine at Drexel, and a long-time member of the Alpha Architect family, is moving on to bigger and better things. Tian recently got married and she is relocating to be with her husband ...

Beware of Institutional Ownership Data from 13F filings

13f
The core source for institutional ownership data is derived from form 13F, which is a form filed by large asset managers that manage over $100mm in 13(f) securities (e.g., stocks). Here is a link to the 13(f) security lists. Many ...

Stale Performance Chasing: Beware of Horizon Effects

2016-06-02 10_35_36-gray_stale_performance_chasing_v01.docx - Microsoft Word (Product Activation Fai
Investors talk a big game when describing how they evaluate mutual funds. They say they consider things like the objectives of the fund, its size, and the longevity of its managers. But there’s one factor that looms larger than all ...

Style Momentum in Australia?

Momentum in Style Portfolios
Jegadeesh and Titman (1993) popularized a simple idea: "past winners outperform past losers." Post JT, the relative strength, or "momentum anomaly," was forever ingrained in the minds of academic researchers (which is odd, since the idea had been around 50 ...

Recapping the Alpha Architect Team Building Adventure

atop shingle peak
The Alpha Architect Team & Friends took a trip to the mountains last weekend to conduct a Freedom Hike--Our unique form of team-building. We were hosted by my youngest brother who runs an elk outfitting business -- Flat Tops Wilderness ...

The Folly of Stock Market Forecasting

Gordon+CAPE_10yr_Error
The idea that one can predict stock market movements is somewhat insane. The major problem with stock market forecasting is the lack of evidence that it is possible. I am unaware of any market commentator that has been successful--on a ...

DIY Asset Allocation Weights: July 2016

DIY Weight_July
Do-It-Yourself tactical asset allocation weights are posted. Create a free account here if you want to access the site directly. Sign in here if you already have a free account. Exposure Highlights: Full exposure to domestic equities. Full exposure to ...

Creating an Alternative Investment Strategy with Value and Momentum

aa ls
Anyone who follows our website should be familiar with the extensive evidence behind our favorite stock selection strategies: Value Investing Momentum Investing The evidence suggests that high-conviction (<50 stock) value and momentum portfolios, deployed as a system, seems like a ...

Insights from Army Ranger, Harvard MBA, and All-Around Business Success–Doug McCormick

doug
At first glance, it's not obvious why business principles would be helpful in informing a long-term wealth management strategy. Yet, the world of business provides useful concepts and a broad financial perspective, which are valuable to anyone planning for their ...

Behavioral Finance Must See: Thaler’s 2016 Presidential Address

thaler on behavial finance
This is a great video to watch over the holiday weekend. Prof. Thaler does a great job walking through behavioral finance/economics. He also has a paper on related topics: Behavioral Economics: Past, Present and Future There has been growing interest ...

Questioning Everything You Knew about Asset Allocation

Volatility Analogy
Is a 100% stock allocation crazy? As long as one addresses their needs for liquidity (as to avoid extracting capital from the markets at bad times) and can tolerate the market price volatility, a 100% or near-100% allocation to equities ...

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